Stock Analysis & Ideas

Wall Street Finds this Healthcare Stock more Enticing, Post Q2 Results

Story Highlights

Tough macro conditions are definitely putting pressure on companies across several sectors. However, certain companies have recently reported better-than-anticipated earnings due to strong execution amid a tough business backdrop. We’ll look at three healthcare giants that have recently delivered upbeat second-quarter results and discuss Wall Street analysts’ opinions about them.  

Healthcare companies might not be completely immune to an economic downturn, but they are generally more resilient than companies in several other sectors. Despite higher input costs and a worsening macro backdrop, some healthcare companies recently reported better-than-anticipated results for the second quarter. We used the TipRanks Stock Comparison Tool to pit Johnson & Johnson, Abbott, and UnitedHealth against each other to pick the healthcare stock that Wall Street analysts are more bullish about.

Johnson & Johnson (NYSE: JNJ)

JNJ topped analysts’ second-quarter expectations, with sales rising 3% to $24 billion and adjusted earnings per share (EPS) up 4.4% to $2.59. Results were driven by the strength in the company’s Pharmaceutical unit, backed by robust sales of several drugs, like psoriasis medicine Stelara and cancer drug Darzalex.

However, the company’s Consumer Health and MedTech units delivered lower sales. Despite a strong Q2 performance, JNJ lowered its full-year guidance due to currency headwinds.  

Cantor Fitzgerald analyst Louise Chen believes that JNJ’s upbeat Q2 results reflect the strength of its products, a diversified business model, and strong execution. The analyst noted that JNJ’s key pharmaceutical products, including Darzalex, Stelara, Erleada, Xarelto, and the COVID-19 vaccine, delivered better-than-anticipated Q2 sales.  

Chen believes that favorable revisions to earnings estimates and EV/EBIT (2022 estimate) multiple expansion from 15x to the range of 17x-20x, fueled by above-market growth in JNJ’s key franchises, could drive the stock higher. In line with his optimism, Chen reiterated a Buy rating on JNJ stock and a price target of $215.

Overall, the Street is cautiously optimistic about JNJ stock, with a Moderate Buy consensus rating based on eight Buys and four Holds. The average Johnson & Johnson price target of $189.17 implies 8.92% upside potential from current levels.

Abbott Laboratories (NYSE: ABT)

Abbott handily exceeded analysts’ revenue and EPS expectations for the second quarter, thanks to $2.3 billion in COVID-19 testing-related sales. The company’s total sales grew 10.1% to $11.3 billion, despite the loss of sales from its infant formula products due to a voluntary recall and manufacturing shutdown. Furthermore, adjusted EPS grew 22.2% to $1.43.

Abbott, which dominates the infant formula market, has been losing market share since it recalled its products in February this year. However, the company reassured investors that it has regained half of the market share that it has lost over the last few months. Abbott resumed partial production of infant formula at its Sturgis, Michigan plant earlier this month.  

Meanwhile, robust Q2 performance helped Abbott raise its full-year adjusted EPS guidance to at least $4.90, from the previous outlook of at least $4.70.

Following the print, RBC Capital analyst Shagun Singh Chadha lowered her price target on Abbott stock to $132 from $143, and reiterated a Buy rating. Chadha stated that the company’s Q2 results were “solid”, with COVID-19 testing sales beating analysts’ consensus by $1 billion.

The analyst believes that the sell-off in the stock following the results reflects growing macro challenges, as well as the impact of staffing issues and the pandemic-led lockdowns in China on the medical device business. Chadha also pointed out that Abbott increased its full-year EPS outlook by only $0.20, which is less than the margin by which it beat Q2 estimates. The outlook also reflects the impact of macro headwinds.

All in all, Abbott scores a Moderate Buy consensus rating backed by ten Buys and two Sells. At $120.58, the average Abbott price target implies 10.53% upside potential from current levels.

UnitedHealth Group (NYSE: UNH)

Health insurance giant UnitedHealth’s second-quarter revenue grew 13% to $80.3 billion, driven by double-digit growth at its Optum and UnitedHealthcare segments. Adjusted EPS surged 19% to $5.57, due to solid top-line growth and operating margin expansion in the UnitedHealthcare segment.

Additionally, the medical care ratio, a key metric that indicates the percentage of premiums spent on medical costs, came in at 81.5%, compared to 82.8% in the prior-year quarter. A lower medical care ratio bodes well for UnitedHealth, as it implies higher profitability for the insurer.

UnitedHealth raised its full-year earnings guidance, backed by the strong performance in the first half of the year. It now expects adjusted EPS in the range of $21.40 to $21.90, compared to the previous outlook of $21.20 to $21.70.

In reaction to the Q2 results and improved outlook, Argus analyst David Toung boosted his price target for UnitedHealth stock to $650 from $580, and reiterated a Buy rating. Toung believes that there are solid growth drivers in UnitedHealth’s managed care and Optum businesses. The analyst highlighted that the company’s top-line growth coupled with margin expansion is fueling its industry-leading return on investment (ROI).

On TipRanks, UnitedHealth scores a Strong Buy consensus rating based on 12 Buys and four Holds. The average UnitedHealth price target of $587.38 implies 10.49% upside potential from current levels.

Conclusion

Abbott stock is down 22.5% year-to-date, while shares of Johnson & Johnson and UnitedHealth are up 1.5% and nearly 6%, respectively. While the upside potential based on average price targets seems comparable for these three healthcare stocks, Wall Street analysts seem more bullish on UnitedHealth. UnitedHealth is optimistic about delivering its long-term EPS growth target of 13% to 16%, based on strong growth opportunities across its Optum and UnitedHealthcare divisions.

Disclosure 

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